Utah Laws for Tipped Employees

Do you earn tips? Plenty of employees
in Utah do, including those who wait tables, serve and mix drinks, open doors,
carry luggage, clean hotel rooms, or provide other services, from moving
furniture to delivering newspapers. In fact, some employees earn more in tips from
satisfied customers than in straight wages paid by their employers.

When you receive tips as part of your
compensation, your legal rights under wage and hour laws become a bit more
complicated. The rules about what counts as a tip, how much your employer must
pay you, and whether you have to contribute to a tip pool (among other things) all
depend on the laws of your state. Although federal law also covers these
issues, employers must follow whichever law – federal, state, or even local –
is the most generous to employees.

Here's what you need to know about
federal and Utah legal protections for employees who receive tips. You
can find out more about Utah minimum wage, tip rules, overtime standards, and
other wage and hour issues at the Utah
Labor Commission.

Tip Basics

The basic rule of tips, under federal law and state law, is that
they belong to the employee, not the employer. Employers may not require
employees to hand over their tips unless one of these exceptions applies:

State law
allows the employer to take a tip credit. Some states allow the employer to
count all or part of an employee’s tips towards its minimum wage obligations.
Although the employer doesn’t technically “take” the employee’s tips, the
employer gets to count some tips as if the employer had paid them directly to
the employee. Utah allows employers to take a tip credit.

The
employee is part of a valid tip pool. Under federal law and in most states,
employees can be required to pay part of their tips into a tip pool to be
shared with other employees.

Tip Credits

Minimum wage laws protect all
employees, whether or not they receive tips. Employees are entitled to earn the
full minimum wage per hour as set by federal or state law. Currently, the
federal minimum wage is $7.25 an hour. The minimum wage in Utah is the same.
Therefore, employees in Utah are entitled to earn at least $7.25 an hour.

State laws differ as to whether the
employer must pay the full minimum wage itself or may count an employee’s tips
toward its minimum wage obligation. Under federal law and in most states,
employers may pay tipped employees less than the minimum wage, as long as
employees earn enough in tips to make up the difference. This is called a
"tip credit." The credit is the amount the employer doesn't have to
pay, so the applicable minimum wage (federal or state) less the tip credit is
the least the employer can pay tipped employees per hour. If an employee doesn’t make enough in tips during a given workweek to earn at least the applicable minimum wage for each hour worked, the employer has to pay the difference.

Utah allows employers to take a tip
credit. Employers must pay tipped employees at least $2.13 an hour. If an
employee doesn’t earn enough in tips to bring his or her total compensation up
to at least the full state minimum wage rate an hour, the employer must make up
the difference. Employers must notify employees of the tip credit at the time
of hire.

Tip Pooling

Many states, including Utah, allow
employers to require tip pooling or “tipping out.” All employees subject to the
pool have to chip in a portion of their tips, which are then divided among a
group of employees. The employee must be able to keep at least the full minimum
wage. (In other words, if the employer takes a tip credit, the employer can
count only the tips the employee gets to take home against its minimum wage
obligation.)

Only employees who regularly and
customarily receive tips can be part of the pool. Employees can't be required
to share their tips with dishwashers, chefs, janitors, or cooks. And no
employers are allowed in the pool: Tips from a tip pool can't go to the
employer.

Under Utah law, employers must put
its tip pooling arrangement in writing, and provide it to employees when they
are hired or before the employer implements the pool.

What Counts as a Tip?

It's not as easy as you might think
to figure out exactly how much of what a customer pays is a "tip." If
the customer pays in cash and tipping is voluntary, whatever amount the
customer leaves over and above the charge for products or services (plus tax) is
a tip. However, if the employer imposes a mandatory service charge, or the
customer pays by credit card, the rules might be different.

Mandatory Service Charges

Some restaurants tack a “mandatory
service charge” on to bills for large tables of diners, private parties, or
catered events. Under federal law and in most states, this isn't considered a
tip. Even if the customer thinks that money is going to you and doesn't leave
anything extra on the table, your employer can keep any money designated as a
"service charge." The law generally considers this part of the
contract between the patron and the establishment, not a voluntary
acknowledgment of good service by an employee. Many employers give at least
part of these service charges to employees, but that's the employer's choice: Employees
have no legal right to that money.

A couple of states have different
rules, intended to make sure that customers know whether their money is going
to the employer or the server. Utah is not one of them, however. Utah
regulations specifically provide that mandatory service charges are not tips,
and belong to the employer rather than the employee(s) who provided service. The
employer may choose to distribute them to employees, but it is not required to
do so.

A recent rule change by the Internal
Revenue Service has created a significant incentive for employers to stop imposing
mandatory service charges, if the employer hands any of that money over to
employees. Starting in 2014, the I.R.S. will begin enforcing a rule that
changes the tax treatment of mandatory service charges. Any portion of such a
charge the employer pays out to employees must be treated as wages, not tips.
This means the employer must withhold and pay Social Security and Medicare
(FICA) tax on these amounts, may not claim a credit against its tax obligations
for these amounts (as it can for tips), and must include them as part of the
employee’s hourly wage when determining overtime payments, among other things.

To the extent employees do not fully
report their tip income, employees who receive all or part of a service charge
won’t be happy with this change, either.

The rule applies only to mandatory
service charges. For the amount to count as a tip rather than a service charge,
all of the following must be true:

The payment must be entirely
voluntary

The customer must have the
unrestricted right to determine the amount

The amount cannot be set by employer
policy or subject to negotiation with the employer.

The customer must have the right to
determine who receives the payment.

Credit Card Charges

State rules differ as to whether
employees are entitled to the full amount of a tip left by credit card. If the
employer has to pay the credit card company a processing fee, some states allow
the employer to subtract a proportionate amount of the tip to cover the
employee’s “share” of the fee. For example, if the credit card company charges
a 3% fee, the employer could legally reduce the employee’s tip by 3% as well.